http://finance.yahoo.com/q?s=^DJI&d=c&k=c1&a=v&p=s&t=my&l=off&z=l&q=l

so i’ve had this theory since ’92 when i put my first dollar into a 401k plan

– prior to 401ks (i.e., mass market consumer investors), the stock market contained dollars substantially from top 3% of the population, corporations, estates/trusts, etc

– the mass inflows of dollars from 10s of millions of newly added consumers automatically increases the price of stocks; 50% of americans invest as of right now

– adding 10s of Ms of new variables (individual investors) into the mix wildly increases volatility

– there is a point of equilibrium, when over the course of time of 401k, online brokerages, etc being available widely, when the % of growth of truly new investors (not offset by those dying, retiring, etc) should approach the general population growth %. at this point, new cash inflow will come largely only from either a) growth of percentage of savings from income or b) a higher percentage of savings moving into equities

looking at the chart above… is frightening. we look tremendously over extended. in my mind, the bubble starts around 1986, not 1997.

we’ve fallen from 12k to 10k to 8k on the dow as people begin the shift of dollars from equities to money market funds, bonds and real estate

the question is this… what REALLY is the appropriate mix of equitities for individuals? 50% 33% the near 100% it was when we were at 12k?

however individuals answer that will become the new equilibrium point, and the dow will, of course, move to match that.

i personally suspect we’ll see 6k before we see 12k

http://finance.yahoo.com/q?s=^IXIC&d=c&k=c1&a=v&p=s&t=my&l=off&z=l&q=l

nasdaq is pretty scary as well, though it’s corrected more aggressively than the dow has (perhaps the ‘flight to quality’ from techs to djia components has something to do with that…)

so… i see the potential for another 25% decline in both of these indexes, perhaps worse on the dow side if there is a panic

of course, the problem with a panic is that it’ll feed on itself; if capital is lost too quickly, consumers will be hesitant (or unable to) rotate dollars into other investment vehicles

i’ve been in 100% (tax free) bonds and money markets for almost a year (wish i had been shorting). hate to try timing the market, but i think this is a good time to be on the sidelines while things shake out…